The behavior of IR and its impact for emerging growth and small-cap companies

I am hesitant to equate a single action or a single product (even our own!) to a specific reaction from the Street(s). This may be a visceral knee-jerk from a slight “career veering” that exposed me to the greasy underbelly of stock promotion.

Shareholder communications for emerging growth and small-cap companies is a chicken-egg mosaic. Media, message, past performance, tactics and strategies are all interwoven: slicing out one element, news release distribution for example, is too myopic. However using a mosaic-eye-view, you can see a pattern of behavior… an overall IR culture of shareholder communications that begets and rewards success.

OTC-HEAT-MAP-t-blr_both

How green is your mosaic:

Emerging growth and small-cap companies have two core challenges as they become a publicly traded entity:

  1. Sell their product in a competitive free market environment
  2. Sell their stock in a competitive capital market environment

Although their two markets’ audiences are different, both are driven by transparency and content – and a company has a much better chance of success if they have their tactical mosaic of communications elements firmly situated.

Emerging growth and small-cap companies study:

For this study, we reviewed the openly-visable shareholder communications of 240 SEC reporting micro and small-cap companies. As a measurement of success, we’ve selected the Average Daily Trading Volume: it is quite simply “proof of sale.”

The individual communications elements are:

  • News releases per year – either over twelve (12+) or under eleven (11-): this is an indication of newsflow and communications consistency.
  • Robust and distinctly identified investor relations website: this is an indication of transparency and financial branding.
  • Earnings webcasts: this is an indication of financial growth (ie: actually having earnings to report).
  • XBRL compliance: this is an indication of transparency and professionalism.

Results:

Of the 240 companies we reviewed, only 79 had measurable volume. From that subset, we compared the shareholder communications elements of the top 25, by volume, with the bottom 25. As you see in the visuals below, the differences are meaningful, especially with news distribution and quarterly earnings webcasts.

OTC HEAT MAP_t

OTC HEAT MAP_b

The difference in trading volumes is equally meaningful: 25 times more trading volume.

Quarterly aggregate trading volume Daily averaged trading volume
Top 25 21,212,352 848,494
Bottom 25 42,864 1,714

Where the companies do to align is with market-cap: the difference is minimum. This indicates that the companies in this study are in scale to one another and that market-cap itself is not a factor. This is VERY important apples-to-apples point. A shareholder communications study across varied market-caps is fundamentally (business persona) flawed.

Combined market-cap Average market-cap
Top 25 1,742,210,171 69,688,406
Bottom 25 1,186,534,000 47,461,360

Obviously, this study does not measure any qualitative factors including the actual content being communicated. However, it does dramatically indicate that just the act of communications can deliver material impact. It’s important to understand that although this study is based on public companies, the lesson is the same for private organization.

Summary for emerging growth and small-cap companies:

1.) News releases and distribution drives audiences. If you are not able to internally identify and generate news consistently, engage an external PR or IR firm.

2.) Set-it and forget-it microsites, like an IR website, are not drivers. They are important for branding and as a hub of your investor materials.

3.) Multimedia events, like webcasts, are an important mosaic element. Use rich media and visual presentations whenever possible.

Lastly, as a final view across all 240 companies, within the complete subset of 79 companies that had measurable daily trading volume, 50% issued 12+ news releases annually. The remaining subset of 161 companies had no measurable daily trading volume – 80% issued 11 or fewer news releases.

This study does not follow all the behaviors a micro or small-cap company may demonstrate: participation at investors conferences or even stock newsletters for example. It does highlight the behaviors common to all smart communicators – regardless of market-cap.

Micro and small-cap companies are invited to CLICK HERE to learn more about our role in helping you succeed. Conveniently price-bundled in intelligent value packages, I may add.

One response to “The behavior of IR and its impact for emerging growth and small-cap companies

  1. This is great brad

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s